This article was originally published on ETFTrends.com.
As investors watch out for new highs in the equities market, many are seeking to capitalize on some of the best growth leaders may turn to ETFs based off Investor's Business Daily high-conviction picks.
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Regular readers of Investor’s Business Daily may be well-acquainted with the publication’s venerable IBD 50, a group of fundamentally sound leading stocks displaying impressive relative strength.
After partnering with Innovator Management, the IBD can now be accessed through an ETF wrapper in the form of the actively managed Innovator IBD 50 Fund (NYSEArca: FFTY).
"IBD marries fundamental research with technical research," Graham Day, V.P. and head of Innovator product development and research, told ETF Trends in a call.
FFTY adheres to the CAN SLIM formula pioneered by IBD founder William J. O’Neil. CAN SLIM combines traits such as a company’s current and annual earnings (rising of course), new, innovative products, leadership in a given industry, increased institutional ownership and other factors.
"The Innovator IBD 50 ETF (FFTY) is a tactical, high conviction portfolio consisting of the 50 top-ranked growth stocks according to Investor’s Business Daily’s CAN SLIM stock selection system," Bruce Bond, Chief Executive Officer of Innovator Capital Management, said in a note. "We are proud to have partnered again with Investor’s Business Daily expanding our portfolio of listings based upon their robust investment research."
Innovator has also recently come out with the Innovator IBD ETF Leaders ETF (LDRS), a kind of ETF-of-ETFs that uses proprietary relative strength analysis to select various asset classes that show market-leading relative strength, including foreign and domestic equity and fixed income securities, along with other alternative asset classes.
“The IBD ETF Leaders Index represents a unique approach to constructing a tactical portfolio of ETFs using IBD’s time tested research to identify top performing ETFs. Beginning with a comprehensive evaluation of all ETFs across global equity, fixed income, alternative and cash opportunities without issuer bias, the highest scoring ETFs are included and equally weighted within the Index on a monthly basis,” Chris Gessel, Chief Content Officer of IBD, said in a note.
The two ETFs are seen as a cost-effective and efficient way to access IBD's investing methodology.
"FFTY exemplifies the ETF structure. It has never issued a capital gains distribution," Day said. We can thank the investment vehicle for this because of the efficiency of the ETF structure."
The so-called IBD 50 picks are constantly being updated, and if the average retail investor were to adhere to the formula, he or she would likely incur hefty trading costs and deal with the tax fallout in executing the trades. Day pointed out that there is a 25% turnover each week in the 50, which translates to 1,000 turnover each year.
Furthermore, LDRS, which acts as an ETF-of-ETFs, also allows investors to garner exposure to a diversified set of various markets through a single investment. If an investor were so inclined to mimic the strategy, he or she would have to take on 25 different trades. Furthermore, unlike other fund-of-funds strategies, LDRS is agnostic in its approach to ETF select, so ETFs of any provider is on the table as long as it can generate alpha.
"LDRS allows IBD to access any where in the market for appreciation, and we use other providers in constitution, which gives you an objective way to invest in ETFs in the market," Day added.